Case Study: New warehouse needed complete “audit”!

The Problem:

A warehouse and logistics company opened a new warehouse but needed a complete internal audit as it wasn’t looked at for 6 months. Their Business Controller left, and their income statement and balance sheet had transactions posted to but didn’t have someone looking at the “big picture” nor the “weeds”. Just transactions posted.

My Solution:

For the months that were not looked, I had their accounts payable coordinator pull all payables backup for selected vendors after digging through the general ledger detail. In total I had her pull a conference room of invoices spanning the 6 months. As this was a new warehouse there hundreds of invoice for racking systems, conveyer systems, new furniture, startup supplies for a 150k+ square foot warehouse. Spending a few weeks, combing thru their invoices, I expanded my vendor selection due to the results I was seeing.

The Results:

In addition to my other FP&A responsibilities for other warehouses, I spent a good month looking at the detail and compared against their budgets, buildout documents, met with their team and reviewed my findings with the VP of Finance and Director of Finance. I uncovered two problems. The first was $150k pickup due to invoices expensed that should have been capitalized. This $150k was incorrectly taken as an expense, so with the reclass this was $150k pickup to EBITDA.

But this wasn’t the only item I uncovered. This should easily been caught by the many levels of approval this went through. This could have been caught in a pretty embarrassing way. This warehouse was up for TIF, Tax Increment Financing, reimbursement from the government. As part of the application process we needed to provide invoices by vendor for the money taxes/spending we paid to build/lease the warehouse. This could have been caught and put the reimbursement in jeopardy. As part of the internal audit we did not pay taxes on $1 million plus in invoices paid as we improperly used a certificate that we used for items that we directly sold to our customers. As these items were for internal use these should have had taxes included on the invoices we paid. This was not just a single vendor it was multiple vendors.

End result we properly paid taxes on. End result we could survive an audit by the county that was reimbursing us for building in their location. So we had $150k in EBITDA savings but we had to take depreciation on and pay for the taxes that were not paid. But the TIF funding of half a million went thru and we still had the savings versus the tax paid so net income increased $400k.